Suppose the firm sells Shs. 4 billion worth of debt (at 7.5% and use the proceeds to redeem Shs. 4 billion worth of equity. Estimate the firm's value, the cost of equity and the WACC: . Using net income approach . Using the net operating income approach Compare the value of the unleveraged firm and the value of the leveraged firm under each approach. What do you conclude? Plot the cost of capital (ro, kp, WACC) against leverage Suppose the firm sells Shs. 4 billion worth of debt (at 7.5% and use the proceeds to redeem Shs. 4 billion worth of equity. Estimate the firm's value, the cost of equity and the WACC: . Using net income approach . Using the net operating income approach Compare the value of the unleveraged firm and the value of the leveraged firm under each approach. What do you conclude? Plot the cost of capital (ro, kp, WACC) against leverage